The business activity recovery index improved but remains below zero – IER

• The Business Activity Recovery Index improved in June, although it remains negative.
• Among businesses able to assess their prospects two years ahead, 85.6% do not plan any changes.
• The share of enterprises operating at full or near-full capacity increased from 57% to 63%.
• Long-term uncertainty declined: the share of businesses that find it difficult to forecast their activity two years ahead fell from 43.5% to 38.2%.
• The average order backlog increased from 2.4 to 2.8 months.

The Business Activity Recovery Index (BARI) improved slightly in June after deteriorating for two consecutive months, but remained negative at -0.14, compared with -0.17 in May. This improvement was driven by a decline in the share of enterprises reporting that their business activity was lower than a year earlier, from 24.4% to 20.6%. At the same time, the share of enterprises reporting no change increased by the same amount.

These are the findings of the 50th Monthly Business Survey conducted by the Institute for Economic Research and Policy Consulting (IER) among 471 industrial enterprises in June.

The BARI improved across all enterprise size groups, with the strongest improvement recorded among small enterprises. As usual, microenterprises continued to have the lowest index value.

“Business sentiment stabilized and improved in June: long-term uncertainty declined, business performance improved month on month, and short-term expectations stopped deteriorating. Given the environment in which businesses are operating, even stopping things from getting worse is already a major achievement”, explained Oksana Kuziakiv, Executive Director of IER.

Capacity utilization compared with the pre-war level increased significantly in June. The share of enterprises operating at near-full capacity (75–99%) rose from 52% to 59%. Another 4% of enterprises were operating at full capacity.

The improvement was driven primarily by a decline in the share of enterprises operating at 50–74% of their pre-war capacity, from 27% to 23%.

“The main positive development is that the share of enterprises operating at full or near-full capacity has now reached 63%, compared with 57% in May,” Oksana Kuziakiv emphasized.

Uncertainty over the six-month outlook for the overall economic situation in the country declined from 27.7% to 26.5%, while uncertainty regarding enterprises’ financial and economic situation fell from 23% to 21.7%.

“Long-term uncertainty, meanwhile, declined by 5.3 percentage points to 38.2%. This is the share of enterprises that find it difficult to predict what will happen to their business activity over the next two years,” Oksana Kuziakiv said.

Among those able to assess their prospects two years ahead, an overwhelming majority (85.6%) do not plan any changes. At the same time, the share planning to expand their operations declined from 12% to 10%, while the share planning to scale back increased from 3.2% to 4.3%.

The average order backlog increased from 2.4 to 2.8 months.

“The backlog of new orders remains relatively small at 2.8 months. The share of enterprises operating with little or no order backlog declined slightly, from 30% to 28%, while the share with orders secured for 1–2 months remained unchanged at 37%. The downward trend in the share of enterprises with order backlogs of 6–11 months also came to an end, with the figure rising from 8% in May to 11% in June,” Oksana Kuziakiv noted.

Some 65% of enterprises have order backlogs covering no more than two months. Enterprises in the woodworking industry have the longest order backlogs, at 4.2 months. They are followed by the chemical industry (3.6 months), metal and metal products manufacturing (3.4 months), and the food industry (2.8 months). The shortest order backlogs are reported by manufacturers of construction materials and printing companies, at 1.5 months each.

Expectations for production and new orders remain subdued after seasonal adjustment.

Businesses expect price growth to slow. In particular, the share expecting prices to continue rising over the next three months fell from 44.5% to 41.3%. A similar trend was observed for prices of finished products, with the share of enterprises expecting further price increases over the next three months declining by 2.2 percentage points.

The IER’s New Monthly Enterprises Survey (NRES) covers up to 500 Ukrainian industrial enterprises located in 21 of Ukraine’s 27 regions. The survey has been conducted monthly since May 2022.

The video presentation of the June survey results is available at this link.